January 05, 2005

Business Schools and Social Responsibility

...[He] asked students whether they would dump carcinogens. On this the class reached consensus: they would do it, because if they did not, someone else would. Prof Giacolone asked whether they wanted to live in such a cynical world. 'We already do,' they replied.

This is striking to me because I have never seen social responsibility treated as seriously in major business schools as it is today. It is now taught and discussed in dedicated programs at Harvard, Stanford, and Wharton. (In 2000 Wharton even convened a conference on social investing, although no major school has done so since.)

Will it do much good? I doubt it. I don't believe unethical behavior is pervasive among corporate managements. Most of the senior managers I have met have been pretty well-intentioned people. Highly-focused, results-oriented - but not unethical or malicious.

But there are exceptions. The worst corporate behavior, in my opinion, is caused by a relatively small percentage of people who have talent, drive, and no moral compass. Robert Hare of the University of British Columbia, an expert in sociopaths, believes that the corporate world is fertile ground for them. (I Googled "Ken Lay" and charming - 8770 hits.) You can send these people to ethics courses: they'll probably be star pupils - and then deceive people anyway.

I believe the disillusionment of the Temple students comes from a conviction that the business world is now dominated by people like this. I don't believe it has gone that far, but there certainly seem to be more amoral people in charge than there used to be. My guess is that this is coming from two powerful management trends.

First, Jack Welch's General Electric taught the business world that the numbers come first, and everything else is a pretty poor second. It's easy to forget that American business in the 70's and even the early 80's had a strong institutional mindset and often espoused long-term management values. Welch demonstrated that a single-minded focus on business results (with a corresponding campaign against bureaucracy and paper-pushing) could revitalize even an enormous company. The lesson wasn't lost on anyone. Welch openly wondered about the risks of the approach in his 1991 Letter to Shareholders:

"Then there's the fourth type [of manager] - the most difficult for many of us to deal with. That leader delivers on commitments, makes all the numbers, but doesn't share the values we must have. This is the individual who typically forces performance out of people rather than inspires it: the autocrat, the big shot, the tyrant. Too often all of us have looked the other way - tolerated these 'Type 4' managers because 'they always deliver' - at least in the short term."

Welch saw the risks, but tolerating the misbehavior of those who 'always deliver' is now a fundamental part of our business culture. No one had a problem with Ken Lay or Dennis Koslowski when their stocks were working.

The second trend has been around a lot longer, and is perhaps the greater problem. That is the cult of personality that surrounds some CEOs. CEOs are celebrities in this country, and as with all celebrities, we're willing to overlook a lot in their behavior. (It is bizarre to me that Donald Trump is now one of the most admired business leaders in America, and even more bizarre that my alma mater, Babson, is teaching a course based on elements of his show).

What really bothers me about the CEO-as-star mentality is that the best CEOs aren't big self-promoters. Jim Collins's book Good to Great explores this issue in depth, and finds that the most effective leaders are exceedingly modest and continually deflect attention and recognition toward their colleagues. I've seen it many times in my career - quiet purposeful CEOs who get the job done, and self-promoters who disappoint. And yet we continue to glamorize the second category.

So the first step in improving corporate behavior, in my opinion, is not to give everyone an ethics class (well, ok, it can't hurt). A better first step would be to stop giving a free ride to the glib CEO who's hitting the short-term numbers but not doing the things he needs to do to build his company for the long term. That's the situation where we've seen the worst behavior from corporations. Things won't get better until boards of directors learn to recognize it and intervene before things get out of hand.